TELKOM SA LIMITED GROUP INTERIM RESULTS. for the six months ended 30 September 2009

Transcription

1 TELKOM SA LIMITED GROUP INTERIM RESULTS for the six months ended 30 September November 2009

2 Overview Reuben September Group CEO

3 Forward looking statement Special note regarding forward looking statements Many of the statements included in this presentation, as well as oral statements that may be made by us or by officers, directors or employees acting on behalf of us, constitute or are based on forward looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our mobile and other strategies, future financial position and plans, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well as projected levels of growth in the communications market, are forward looking statements. Forward looking statements can generally be identified by the use of terminology such as may, will, should, expect, envisage, intend, plan, project, estimate, anticipate, believe, hope, can, is designed to or similar phrases, although the absence of such words does not necessarily mean that a statement is not forward looking. These forward looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward looking statements. Among the factors that could cause our actual results or outcomes to differ materially from our expectations including but not limited to those risks identified in Telkom s most recent annual report which are available on Telkom s website at We caution you not to place undue reliance on these forward looking statements. All written and oral forward looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to update these statements, we will not necessarily update any of these statements after the date of this document, either to conform them to actual results or to changes in our expectations.

4 Overview Strategy Definitively moved into execution phase Revenue Up 4% despite economic downturn & competitive pressure Cost Restructuring for fundamental & sustainable efficiency Shareholder value and free cash flow Underpins all key decisions

5 Strategic advances Defend profitable revenue Grow fixed-mobile capability Grow broadband & ICT converged services Become Pan- African ICT service provider Cost management Annuity revenues up 6.1% to R3.8bn Closer subscribers up 25.2% to 636,010 Supreme Call subscribers up 11.9% to 15,349 Contracted revenue now 50.9% of total revenue Mobile business plan approved launch in 2010 Unique value proposition in fixed-mobile broadband 22.6% increase in ADSL subscribers to 602,720 Do Broadband subscribers up 51.1% to 232,796 Managed data network sites up 6.4% to 29,842 Cybernest - Data Centre Operations launched Multi-Links showing some operational improvement Africa Online and MWEB Africa integration in progress Restructuring 85% complete Incurring once-off restructuring costs Cost saving opportunities identified Execution a critical focus area

6 Renaissance update Significant progress made with the transition of employees into the new organisational structures Data centre operations and mobile business plans finalised Multi-Links turn-around gains momentum Cross functional task team working on 10% operating expenditure reduction Telkom Renaissance An employee participative culture revitalisation initiative launched to increase engagement, empowerment and alignment with the new way of doing business Execution of quick-wins

7 Voice Voice revenue (traffic, interconnection & subscription) Decreased 0.8% to R11.9bn as a result of lower traffic revenue Interconnection revenue 52.5% increase in interconnection revenue Lower margin revenue Calling plan revenue Up 18.1% to R732m defend & grow successful Line losses and mobile substitution make addition of Telkom mobile offering an imperative

8 Interconnection revenue Mobile domestic incoming Down 5.8% to R266m Increased mobile to mobile calls (on net) Mobile international outgoing Up 107.9% to R338m Zimbabwe tariff hike International interconnection Up 59.6% to R758m International carrier services low margin Other fixed to Telkom Up 166.7% to R96m Neotel, VANS, ISPs The benefit of reduction in mobile termination rates will be passed on to Telkom customers

9 Data continued growth of 8.7% High value services Basic services Managed network, including VPN services Internet access Mobile Leased lines Data connectivity % revenue increase Size (Rm) 5.2% 27.0% 14.1% 2.4% ,509 Total data revenue increased 8.7% to R4,849m despite price decreases Strong growth in demand ADSL revenues increased by 14.5% to R968m Innovative, quality, flexible and reliable services 9

10 Differentiation initiatives Current differentiators Capacity and ubiquity of network Quality, reliability and security Flexible and comprehensive SLAs Added differentiators Full suite of converged solutions through added mobility and data centre business Product simplicity Differentiators driving value for our customers

11 Telkom core global submarine cable network (current & future) Competitive pricing, superior availability, true redundancy, growing bandwidth SAT3/SAFE Seacom EASSy (mid 2010) WACS (mid 2011) EIG (mid 2010) SMW3 COL3 Global cable system - key differentiator

12 Summary of Telkom s core cable investments Cable COL3 upgrade SMW3 upgrade S3WS 3 rd upgrade Ready for Service date Completed 27 Oct 09 End 2009 Completed 26 Oct 09 Cable length (including branches) 10,000km 39,000km 29,000km Design Capacity 320Gb/s Not publically available 340Gb/s (SAT3) 440Gb/s (SAFE) EASSy mid ,500km 1.4Tb/s EIG mid ,000km 3.84Tb/s Bringing increased bandwidth to Africa Cost per Gig declines dramatically with capacity increases, enabling price reductions WACS mid ,500km 5.12Tb/s

13 Cost reduction and free cash flow Discretionary expenditure immediate reduction Restructuring 85% complete profit and loss accountability Once off restructuring costs Provisions and write offs for technology obsolescence and slow moving inventory Renegotiating supplier contracts across the board Reducing IT spend Opex and capex under review Outsourcing negotiations re opened Reducing product portfolio & legacy systems Attacking embedded operational costs

14 Cost reduction & free cash flow continued Aggressive management of capex programme Capex decreased 39.4% to R2.8 bn Related short term impacts, eg reduced capitalisation of labour Optimising natural attrition, overtime and contractor spend Extracting efficiencies in access network operations through mobile synergies Careful planning required for sustainable benefits

15 Data Centre Operations Security Launched on 19 November 2009 Completed expansion of 2,400 square meters mainly Tier 3+ facility Proven track record Extension of Telkom s value chain to all customers Strategic alliances bolster capability Focus creates revenue growth and cost efficiency opportunities Carrier neutral facility at Cape Town (Bellville) The focus is on environmental sustainability Agility Stability Data Centre services outsourcing is a major growth opportunity

16 Mobile Principles Simplicity Quality Calculated aggression Implementation Update Mobile business plan approved after extensive market research Maximum capex R6bn over 5 years, but initiatives underway to reduce capex by way of: Roaming and co location negotiations Exploring innovative vendor financing Utilising latest composite 2G and 3G technologies Mobile has the competitive advantage of existing assets eg Network, distribution and customer base Mobile launch anticipated in 2010 Expanding into growing revenue streams

17 Multi Links Remains our major concern Market conditions remain tough Extremely competitive Pricing pressures Economic slow down CDMA operators lack scale Excessive inventory levels High subsidies Expensed N1.4bn with regard to inventory provisions New distribution channels being established Consolidation opportunities being pursued to speed up turn around of Multi-Links Active voice ARPUs drop to US$7 from US$12 at March 31, 2009

18 Multi Links Operating improvements: Operating revenue up 23.3% to N15,325m Active subscribers up 29.6% to 2,036,404 Data subscribers (EVDO) up 615% from March 31, 2009 to 18,924 EVDO subscribers generating US$30 ARPUs Total data revenue up 261% to N1,200m International carrier services launched aggressive growth Revenue generation and opex efficiencies showing monthly improvement

19 Multi Links Further improvements: Business restructured to create focus Widening and deepening dealership coverage Systems in place to manage dealers, customers and inventories Reducing head count, including expensive expats Leasing cell sites where necessary Speeding up conclusion of capital work in progress EBITDA margin improving Turn around gaining momentum

20 Africa Online and MWEB Africa Western Sahara Morocco Senega Maurita nia Mali l Gambia Guinea Bissau Guinea Burkina Sierra Ivory Leone Coast Togo Liberia Ghana Benin Algeria Niger Nigeria Equatorial Guinea Tunisia Cameroon Gabon Libya Chad Congo Egypt Central African Republic DRC Rwanda Burundi Sudan Ugan da Tanzania Ethiopia Keny a Eritrea Djibouti Somalia Integration complete by July 2010 Provides Telkom platform in 33 African countries Overlap of Primary operations of AFOL & MWEB Overlap of MULTI-LINKS & MWEB Only AFOL Operations Angola Zambia Namibia Botswana Zimbabwe Mozambique Malawi Madagascar Overlap of Distributors of AFOL & MWEB Only AFOL Affiliates (Partnership with A-link) South Africa Lesotho Swaziland Telkom SA

21 Financial overview Peter Nelson CFO

22 Significant transactions impacting results Impact of the sale of our 15% stake in Vodacom and unbundling of the remaining 35% amounted to an after tax profit of R40.4 billion No proportionate consolidation of Vodacom, therefore no elimination of revenue from and payments to Vodacom during the period under review Impairment of goodwill in Multi Links Nigeria of R2,148 million Recapitalisation of Multi Links Balance sheet STC on special dividend R135 million Profit on disposal of Telkom Media of R68 million Reversal of Telkom Media onerous lease of R102 million Increased provisioning for slow moving and technology obsolete inventory, R226 million Change in accounting policy for post employment benefits Acquisition of MWEB Africa from May 2009

23 Segment reporting Telkom South Africa Multi Links Other International MWEB Africa Africa Online Telkom International South Africa Trudon Corporate Centre New segmental disclosure 23

24 Group statement of comprehensive income ZAR million Sept 08 Sept 09 Adjusted Adjusted % Operating revenue 17,991 18, Other income (1.4) Operating expenses 14,542 16, Operating profit 3,660 2,628 (28.2) Investment income Finance charges and fair value movements (25.3) Taxation 1, (23.7) Profit from continuing operations 1,880 1,468 (21.9) EBITDA 5,817 5,106 (12.2) EBITDA margin (%) (15.5) Basic earnings per share (cents) (150.2) (141.2) Headline earnings per share (cents) (37.9)

25 Profit from continuing operations contributors Net profit Sept 08 Telkom Company (incl Cell Captive) Net profit Sept 09 (R412 million) ZAR million 1,880 (362) (62) (4) (4) ,468 Multi-Links TMS Africa Online MWeb Africa Trudon Decline due to Telkom SA and Multi-Links

26 Telkom SA revenue ZAR million 2.9% 3,233 3,344 7,833 7,126 16,554 17, % (9.0%) % 1,458 4, % 4,849 Total Subscriptions & connections Traffic Interconnect Data Sept 08 Sept 09

27 Telkom SA traffic 1,656 2,111 1, ,670 1,870 1,704 1,869 4,688 Traffic Revenue ,881 1,637 1,048 3,803 3,362 (13.0%) (11.6%) (11.9%) 18.1% (1.9%) Local Long distance Fixed-to-mobile International outgoing Calling plans (21.7%) (11.4%) (9.7%) 9.7% Traffic Volumes Local Long distance Fixed-to-mobile International outgoing Calling plans Challenge is to pull traffic back Sept 08 Sept 09 Millions of minutes ZAR million (2.1%)

28 Telkom SA annuity revenue ZAR million Sept 08 Sept 09 % Line rental 2,411 2, Calling plans / packages CPE rental Value added services International other (7.7) Total 3,595 3, Note: Annuity revenue includes all subscription revenue. It does not include usage or traffic related revenue from calling plans/bundles, line installations, reconnection fees and CPE sales

29 Telkom SA revenue Interconnection ZAR million Sept 08 Sept 09 % Mobile Fixed domestic International Total 956 1, Interconnection Millions of minutes 2, % 2,356 Sept 08 Sept 09 Data ZAR million Sept 08 Sept 09 % Leased lines and other 3,597 3, Mobile leased facilities Total 4,459 4, ADSL Subscribers 22.6% 491, ,720 Sept 08 Sept 09 Interconnection and data boosts revenue growth at lower margins

30 Group operating expenses ZAR million Sept 08 Sept 09 % Employee expenses 4,045 4, Payments to other operators 3,994 4, SG&A 2,756 3, Service fees 1,230 1, Operating leases Group operating expenses 14, % 16,286 Depreciation, amortisation, impairment and write offs 2,157 2, Sept 08 Sept 09

31 Group operating expense drivers Category Segment Driver Employee expenses Telkom SA Annual salary increases and an adjustment to accelerate the elimination of disparities Payments to other operators Telkom SA Increased payments to international operators due to increased tariffs and volumes SG&A Telkom SA Provision for slow moving and technology obsolete inventory Higher ICASA licence fee provision Service fees Corporate centre Consulting fees for reorganisation and implementation of strategy Operating leases Multi Links Increased utilisation of leased infrastructure as opposed to owned Depreciation, amortisation, impairments & writeoffs Telkom SA Multi Links Investment in network and data processing equipment in recent years

32 Telkom SA operating expenses ZAR million Sept 08 Sept 09 % Employee expenses 3,294 3, Payments to other operators 3,663 3, SG&A 1,733 2, Service fees 1,082 1, Operating leases Depreciation, amortisation, impairment and write offs 1,881 2, Total 11,978 13,

33 Multi Links operating expenses Category Employee expenses SG&A Operating leases Depreciation, amortisation, impairment and write offs Driver Recruitment of strategic staff Increased inventory provisions, subsidies and commissions Increased utilisation of leased infrastructure as opposed to owned Investment in network and data processing equipment in recent years Multi-Links operating expenses ZAR million 10.2% 1,081 1,191 Sept 08 Sept 09

34 Group statement of financial position Mar 09 Sept 09 % ZAR million Non current assets 51,010 47,477 (6.9) Current assets 11,287 13, Disposal group held for sale 23, (99.7) Total assets 85,779 61,442 (28.4) Capital & reserves 35,495 32,656 (8.0) Non current liabilities 16,959 14,057 (17.1) Current liabilities 17,452 14,714 (15.7) Disposal group held for sale 15, (99.9) Total equity & liabilities 85,779 61,442 (28.4) Net debt continuing operations 15,497 7,669 (50.5) 0.8x net debt to EBITDA (Annualised) Sept 08 Sept % return on assets (Annualised) Sept 08 Sept 09

35 Group statement of cash flows ZAR million Sept 09 Cash generated from operations 2,021 Add back half of CGT liability 677 STC on R19 dividend 977 STC on R2.60 special dividend 135 Adjusted cash generated from operations 3,810 Proceeds on disposal of PPE and intangible assets 30 Additions on PPE and intangibles (3,044) Acquisition of MWEB Africa (185) Normalised free cash flow 611

36 Group capex major items of expenditure ZAR million Sept 08 Sept 09 % Access network (25.2) Legacy (18.9) NGN (43.6) Fiber (22.0) International Information Operations (36.4) Customer premises equipment (24.4) Facilities (19.3) Other (48.2) Telkom SA 2,721 1,924 (29.3) Corporate Centre Multi Links 1, (59.9) Other International 25 Other South Africa (6.7) Total 4,544 2,755 (39.4) Capital expenditure aligned to economic conditions

37 Debt maturity as at September 30, 2009 ZAR million 2009 Maturing in 2010 calendar year CP Bills 500 PP02 1,350 PP Foreign loan 11 Call borrowing 140 Term loans 2,000 Maturing 2011 calendar year Foreign loan 15 Maturing after 2011 Syndicated loans (maturing in 2013) 3,280 TL 12 (maturing in 2012) 1,060 TL 15 (maturing in 2015) 1,160 TL 20 (maturing in 2020) 2,500 Foreign Loans (maturing between ) 95

38 Guidance for 2009/2010 It is difficult in the current climate to make any revenue and earnings forecasts Capex expected to range between 20% and 23% of revenue Long term net debt to EBITDA of 1.4x 38

39 For information purposes

40 Multi Links statement of comprehensive income Naira million Sept 08 Sept 09 % Operating revenue 12,429 15, Other income Operating expenses 16,472 22, Employee expenses 558 1, Payment to other operators 4,813 5, SG&A 8,427 9, Service fees Operating leases 914 2, Depreciation, amortisation, impairments and write offs 1,593 3, Operating loss (4,004) (6,930) 73.1 EBITDA (2,411) (3,075) 27.5 EBITDA margin (%) (19.4) (20.1) 3.4 Average Naira/Rand exchange rate Closing rate at beginning of the period Closing rate at end of the period

41 Multi Links statement of financial position Naira million Mar 09 Sept 09 % Non current assets 69,411 80, Current assets 23,004 19,015 (17.3) Total assets 92,415 99, Capital & reserves (20,283) 35, Non current liabilities 88,158 38,154 (56.7) Current liabilities 24,540 25, Total equity & liabilities 92,415 99, After recapitalisation - 55 billion Naira